Nice piece in Tuesday’s Wall Street Journal on the AFL-CIO’s Bill Patterson and the continuing efforts to pressure Wall Street firms to get out of the pro-privatization movement:
Social Security Change Faces Labor Muscle
AFL-CIO Investment Official Uses Heft of Pension Assets To Influence Wall Street’s Views
By JEANNE CUMMINGS
Staff Reporter of THE WALL STREET JOURNAL
March 22, 2005; Page A4WASHINGTON — Wall Street’s caution on Social Security overhaul stems from the issue’s political explosiveness as well as questions about how financial firms might profit from private accounts. Another powerful reason is a soft-spoken executive in organized labor.
He is William Patterson, a 55-year-old AFL-CIO official who has been warning financial firms that embracing President Bush’s top domestic priority could become an issue when pension trustees review fund managers. His effort prompted House Republicans last week to ask the Labor Department to investigate whether it violates labor and pension laws.
“It’s not illegal for us,” says Mr. Patterson, who runs the AFL-CIO Office of Investment from a sunny corner office two blocks from the White House. “We have a responsibility to support Social Security against efforts to weaken it.”
Mr. Patterson is trying to do so with a political weapon he has honed for the past nine years, since AFL-CIO President John Sweeney hired him from the Council of Institutional Investors.
The weapon is the leverage labor has with business from the $400 billion in collectively bargained pension assets that union officials invest.
When Mr. Patterson launched the investment office to unify strategy for labor-pension assets in 1996, he promptly posted on the Internet the pay packages of chief executives of major corporations. In 2002, amid burgeoning business scandals, he organized labor-fund trustees and shareholders to oppose the re-election of Enron Corp. directors to other corporate boards; three of them, including Wendy Gramm, the wife of former Republican Sen. Phil Gramm of Texas, subsequently quit various boards.
Later that year, unions successfully pressed the Securities and Exchange Commission to require mutual funds to disclose proxy votes and the reasoning behind them.
Now Mr. Patterson probes for ways to push financial firms away from supporting the White House plan to overhaul Social Security through private investment accounts. The AFL-CIO opposes carving out a portion of Social Security revenue to finance those accounts, fearing that would undermine the current system, which has already been factored into negotiated retirement-benefit plans.
Mr. Patterson’s tactics begin quietly with an exchange of letters, but can escalate quickly into old-fashioned, noisy street demonstrations.
Next week, the AFL-CIO plans more protests in California, Pennsylvania and elsewhere outside the offices of Charles Schwab Corp. and Wachovia Corp., which both belong to lobbying coalitions backing Mr. Bush’s Social Security approach. Schwab itself hasn’t endorsed the president’s call for private accounts and considers the protesters “misdirected,” says spokesman Greg Gable. But Mr. Patterson, noting Schwab’s continued donations to a pro-Bush coalition, responds: “They can’t insist they are neutral when they are members of an advocacy organization dedicated to privatizing Social Security.”
The effort has had an impact. At the Alliance for Worker Retirement Security, an umbrella group of Bush backers, Director Derrick Max says his original pool of investment firms now contributes about 8% of his budget, roughly half of the percentage before labor went on the offensive. Mr. Max says, however, that he has more than made up the lost revenue with bigger checks from other coalition members and new recruits from the investment industry.
“This campaign is ill-conceived but it’s to our benefit,” Mr. Max says. He and other Bush supporters call Mr. Patterson’s effort tantamount to blackmail.
The pressure isn’t subtle. Three New York City Employees’ Retirement Systems’ trustees warned J.P. Morgan Chase & Co. and five other investment houses that their positions on revising Social Security may be considered in reviews of fund managers.
“We are gravely concerned that apparent connections between your firm and organizations involved in initiatives that are potentially injurious to the retirement security of plan beneficiaries may be at odds with the duty to represent the best interests of our plan and its beneficiaries,” the letter states. A J.P. Morgan spokeswoman declined to comment.
Other firms are choosing their words carefully amid the unwanted attention. Wachovia believes in the “fundamental importance” of Social Security and that strengthening it “is absolutely necessary,” says its statement. “We encourage Congress to consider ways to expand retirement-savings opportunities for all Americans. As always, we will support the financial needs of our customers as they plan for retirement.”
To be sure, some groups are keeping their distance from the White House effort without any contact from labor unions. The Financial Services Forum, an association of 21 chairmen of major financial institutions, earlier this year withdrew from an organization pushing Mr. Bush’s private accounts because members weren’t ready to embrace that specific solution.
“Like a lot of folks on Wall Street, there is a great deal of support for personal savings accounts among Forum members,” says Forum President Rick Lazio, a former Republican House member. “But there are people who are waiting for additional details.”
Mr. Patterson uses every tool at his disposal to magnify that reluctance. In particular, he aims to use labor’s clout to offset the incentive that potential investment fees give Wall Street to back Mr. Bush’s plan.
His goal, he says, is to preserve “the integrity of the debate around worker-retirement security by making sure conflicts of interest … do not skew the debate.”
His next target is the Securities Industry Association, a trade group representing more than 550 firms, that is a member of the pro-Bush Alliance headed by Mr. Max.
So far, the association isn’t budging. Elizabeth Varley, the association’s vice president for policy, noted that SIA hasn’t specifically endorsed the Bush plan for private accounts. Yet the organization believes private accounts should be part of the debate, she says, and that’s why “we have no plans to withdraw” from the Alliance.
“Each [investment] fund will decide what to do,” Mr. Patterson says. But “it’s a responsibility for us to communicate with worker funds on the impact of Social Security privatization.”
